Mary West, 53, owns a small unit in Sydney's Dulwich Hill.
Name Mary West
Occupation Counsellor
Salary $38,000
Investments Home worth $240,000
Super About $105,000
Debts Mortgage of $67,000 plus HECS of $8000
Aims Wants to own her home, have no debts, and to live on $30,000 a year in retirement.
She plans to retire at 65, but is concerned that she will not have enough savings for a comfortable retirement. She has super with the Commonwealth Government and HESTA, worth $105,000. West changed career when she was 47, and now works as a counsellor. She has been invited to apply for a "fantastic" job in Gosford. It's too far to commute from Sydney, so she is considering whether she should rent out her unit. West misses not having a garden and thinks she may be able to afford a townhouse with a small garden in Gosford.
Adviser Damian Cullen CFP, managing director, Cullen Financial Planning.
Recommended strategy As West has applied for a job in Gosford with a salary increase of about $7000 a year and would like to retire out of Sydney, it seems to make good sense to accept this position from both a financial and a personal point of view.
I recommend she rents a property in the area for at least six months so that she has a chance to live there before committing to buying. During this time she should rent out her Sydney property.
West feels that she could probably buy a property in Gosford for about $260,000. Her Sydney unit is worth about $240,000; allowing $20,000 for costs and moving expenses, she will be about $40,000 out of pocket after the move. This will increase her home loan to $107,000. Repaying this loan at her current rate of $300 a fortnight will take just under 17 years, but her goal is to repay this loan by the time she is 60. In order to achieve this, she will need to increase her fortnightly repayments to $740.
Her retirement goal is to be able to live on $30,000 a year. This will require a lump sum of about $500,000. West's current super fund balance is $105,000, so she will need to increase it by $395,000 over the next 12 years. Also, this amount will need to be increased to allow for inflation, so a more realistic figure is about $700,000.
It's unlikely that she will be able to achieve her retirement income goal. West is a reasonably conservative investor. She can remain conservative, but will need to reduce her lifestyle expectations in future, or she can take out some more assertive investments, which carry some investment risk. West's super fund should grow to about $400,000 by retirement, depending on her earnings and the contributions she makes. This, combined with some age pension, should give her a retirement income of about $20,000.
I recommend that she borrow $100,000 against the value of her Sydney property, and invest it into a portfolio of shares-based managed funds. This can be set up so that the interest off the loan is paid from the earnings of the portfolio. This should grow to be worth about $125,000 at age 65 and would improve her retirement lifestyle by about $4000 a year.
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